The Bank of Japan (BoJ) is standing by its assessments of an improving domestic economy and gradually rising inflation, despite skepticism from private analysts. The central bank also intends to keep pursuing its aggressive monetary easing policy for “some time” to completely vanquish deflation, according to comments by BoJ Governor Haruhiko Kuroda, made yesterday.
“We at the Bank of Japan do not think it is necessary to change our economic forecast for coming years. We will continue our current monetary policy, but if there is anything which could derail our course toward 2% inflation target we would not hesitate to change or adjust our monetary policy.” Governor Haruhiko Kuroda told reporters at the Kansas City Fed’s gathering of global central banks in Jackson Hole for the annual “Economic Symposium.”
The BoJ deployed an intense burst of monetary stimulus in April 2013, when it pledged to double its money base with a quantitative and qualitative monetary easing (QQE) program of asset purchases. The BoJ’s governor has planned on the QQE program accelerating consumer inflation to 2% in about two years, after Japan has been mired in fifteen years of grinding deflation.
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Governor Kuroda’s comments follow increasingly more pessimistic forecasts by private sector economists about his ability to solve Japan’s persistent deflation problem in just two years, and also recently about his supposed success in ramping up growth. While the BoJ forecasts GDP growth to reach 1.0% for the current fiscal year, a survey of eleven Japanese think tanks released this week said that forecasters see average growth of just 0.5% for the same period. Additionally, Goldman Sachs cut its forecast to 0.4% this month, expecting the recovery to be relatively weak because of a steep drop in real disposable income and the buildup of inventories.
The BoJ governor based his optimistic reading of the state of the Japanese economy on an expected pickup in global exports, corporate spending and local consumer confidence in the country. He said: “The world economy is recovering and increasing its growth. Given this good prospect of the world economy we expect Japan’s exports to gradually catch up.” He also added internal factors to its recovery: “We still think underlying trend of consumption is relatively robust because employment income continued to increase, reflecting a strong employment situation, as well as increasing nominal wages. Second, corporate profits situation continues to be quite good. So that the corporate sector has very robust strong investment plans for this year and investment is increasing.”